Venezuela's Oil Troubles Will Not Be Over Soon

March 12, 2015

Venezuela's reserves, nearly 300 billion barrels according to the "Oil and Gas Journal," surpass even those of Saudi Arabia. Nevertheless, two conditions must be met in order to turn a profit. One is the ability to produce millions of barrels of crude per year; the other is the opportunity to sell the oil at a high price.

Venezuela has recently struggled to meet the first condition due to the sheer incompetence of the socialist government. Despite the price of oil multiplying by a factor of twelve since Chávez rose to power in 1999, Venezuela has been producing a million barrels less per day than before Chavez took power.

Making matters worse, 50 percent of the country's oil production going to China and Cuba to pay off debt. Consider:

Oil prices have fallen by 45 percent, reducing revenues to less than $150 million.

Social programs supported by fossil fuel revenue focused on handouts for food, clothing and community development conservatively report spending cuts as deep as 80 percent.

Venezuelan debt, much of it owed to other socialist or quasi-socialist countries is expected to cost the country $11 billion for 2015 alone.

Sector fundamentals show no indication oil will fall much lower than $55 per barrel or rise much higher than $60 in the near future.